Fed Reserve interest rate hike hits consumers

WASHINGTON (AP) - The Federal Reserve is raising its benchmark interest rate for the second time in three months and signaling that any further hikes this year will be gradual. The move reflects a consistently solid U.S. economy and will likely mean higher rates on some consumer and business loans.

The Fed's key short-term rate is rising by a quarter-point to a still-low range of 0.75 percent to 1 percent. The central bank said in a statement that a strengthening job market and rising prices had moved it closer to its targets for employment and inflation.

The message the Fed is sending is that nearly eight years after the Great Recession ended, the economy no longer needs the support of ultra-low borrowing rates and is healthy enough to withstand steadily tighter credit.

Wednesday, the Federal Reserve is expected to announce a 25 basis-point increase in its target interest rate, which would mark the third such rate hike in the last 15 months.

And with credit card debt steadily worsening, this latest increase will cost U.S. consumers roughly $1.6 billion in extra credit card finance charges during 2017, according to WalletHub analysis. This complicates an already bad situation for credit card users, considering that WalletHub expects outstanding balances to break the all-time record in 2017.

Mortgage and auto loan rates are more difficult to predict because they are longer-term borrowing vehicles with fixed rates. But if markets react to today’s expected rate hike like they did to the Fed’s December 2016 move, the following data points may give us a sense of what’s coming:

The APR on the average 30-year fixed rate mortgage rose from 3.48% in late June 2016 to 4.32% at the end of the year.

The average APR on a 48-month new car loan rose from 4.25% in August 2016 to 4.45% in November (the most recent data available).